Here’s How Much Bad Leadership Can Cost an Organisation

“Gallup estimates that a lack of leadership capability costs U.S. corporations up to $550 billion annually.”

There’s nothing more frustrating than seeing a high-functioning organisation held captive by its leader. There’s few things more needlessly damaging to an organisation’s prospects in an increasingly competitive world that can spoil the party before it’s even started, so today we’re going to talk about the real-life monetary impact of bad leadership in organisations. It’s one thing to throw around buzz-words and generalisations, but another thing entirely to look at the numbers and see the concrete link of bad leadership with underperforming organisations. So, let’s get started.

The numbers show that bad leadership causes toxic attitudes in the workplace and isolates even the most tough-headed and resilient staff members to the point that they’re likely to quit your organisation and work for a more inspiring leader. Research from the Australian Institute of Management with Monash University shows that “83% of the almost 2000 employees surveyed rated their manager’s leadership skills as average or below average and they also ranked poorly in terms of communication, skills, strategic influence and their ability to oversee staff performance.” In addition, research from a 2016 Gallup poll show that “only 18% of managers demonstrate a high level of talent for managing others- meaning a shocking 82% of managers aren’t very good at leading people.”

“Gallup estimates that a lack of leadership capability costs U.S. corporations up to $550 billion annually.”

This is compounded by figures published by Hogan Assessments which says that 75% of employees considered their boss “the worst part of their job”, which no doubt leads to disengagement in the workplace, a lack of productivity and the building of a toxic working culture. If you want any proof that effective leadership is important to everyone in an organisation, look no further than the numbers put forward by Hogan who says that “65% of employees would rather have a new manager than a pay rise.”

There is another problem to consider. While Deloitte estimates that $46-billion is spent on leadership development programs worldwide, data from the Corporate Leadership Council says that these dollars spent on improving the leadership skills of managers and CEOs has improved productivity a measly 2%. Meanwhile, Gallup estimates that a lack of leadership capability costs U.S. corporations up to $550 billion annually, so we can see that in the US alone, this is a half-a-trillion-dollar problem.

The data shows that there’s a clear correlation - and I’d argue, causation - between ineffective management practices and a loss of profit. There’s a number of reasons for this: bad leadership fails to inspire and empower staff, which causes a dip in productivity and profits. In addition, ineffective leadership often negates the importance of planning for the future, and taking a gaze at operations objectively; the latter of which we’ll cover in just a minute with the help of one of my favourite authors.

“Great managers boost employee productivity by an average of 11% per employee.”

Why? Well, it’s a concept that Doug Tatum talks about in his book “No Man’s Land”, whereby a founder or CEO has an inherent difficulty in letting go of the decision making in the business because it is, quite simple, their baby. While it’s understandable, objectively speaking, it’s counter-productive to the mission of the organisation to reach its full potential. No man’s land, as Tatum puts it, is that perilous time in the lifespan of most businesses as they’re expanding past the point of being a small business, but they’re not big enough to be deemed a large enterprise.

From his experience consulting and interviewing hundreds of managers and CEOs around the US and the globe, Tatum noted that while the founder or CEO might have been an integral part of the organisation’s expansion, they can also have a negative impact if the organisation has expanded past the point of their abilities to effectively manage it. A strategy employed across a group of five people isn’t viable when we’re talking about a dozen or more people, but some of the more stubborn leaders won’t recognise this, and even associate the cause of the problem to be their staff, rather than themselves of the practices they believe are the only way for the organisation to be managed.

Anyone in a leadership position in an organisation, anyone in an organisation at all for that matter needs to recognise one thing: empowering staff and being empathetic are two of the most valuable tools that currently exist in business today. Being a bad leader doesn’t necessarily mean they’re a bad person, but if you cast your gaze to the organisation as a whole as objectively as possible, they are in fact sabotaging their success - and the people around them - by not realising they’re holding people and profits back from their full potential.

In the near future, we’ll talk about some strategies on how to most effectively connect with your staff from a leadership position, as well as how to inspire those around you if you’re lower down the foodchain in an organisation. Remember, you don’t need to have director, CEO or manager in your title to have a profound impact on the attitudes of people around you. So keep an eye on our blog for more.